Tuesday, December 14, 2010

U.S. Consumers Are Back: Retail Sales Return to Pre-Recession Levels; Frugality Fatigue Is Over

The Census Bureau reported today that retail sales increased for the fifth straight month and reached $378.7 billion in November, the second highest monthly level in history (not adjusted for inflation) and the highest level since $379.9 billion in November 2007, the month before the recession started (see top chart above). Compared to a year earlier, November retail sales increased 7.7%, following strong gains of 7.3% in October and 7.4% in September (see bottom chart above). This marks the 13th consecutive month of annual gains in retail sales going back to November of 2009, following 14 months in a row of annual decreases.

Compared to November of last year, all components and sub-components of retail sales have improved, led by strong gains in the sales of motor vehicles (12.5%), building materials (12.3%), sporting goods (12.3%), and clothing (7.5%).

Bottom Line: Despite the ongoing weakness in the labor market and a stubbornly high jobless rate, the ongoing gains in retail sales suggest that the U.S. consumer is coming back as the economic recovery gains momentum by most indicators and measures. As the WSJ reported recently, "After several years of relative thrift, consumers may be parting with their money more willingly simply due to pent-up demand, something industry watchers are calling "frugality fatigue."

If you look at the average debt payment obligations of the public as a percentage of income the debt burden for consumers is line with what it has been historically. I believe there have been previous posts on this topic on this blog. So, it would seem to make sense that more disposable income would now be available to fund more consumer purchases.

Got a question for you vangeIV, how do we know that these particular consumers are, 'deep in debt'?

We do not know that all of the people are deep in debt. But we have some very good indicators that suggest that many of them are. First there are the surveys, in which consumers have said that they have experienced a recession 'fatigue' and are spending to make themselves feel better. Then there are the reported observations at the malls. The analysts are noting that a huge cross section of society is represented and that most are buying stuff on credit. If you choose to assume that this is only driven by the prudent saving types that do not have much debt outstanding and are fully up to date on their mortgages and credit cards go ahead. But from what I see on the news and business programs I do not see any evidence that is the case.

Mind you, your question was what also flashed through my mind when I read the posting...

Could it be that was passes for news in this country 'over hyped' deep in debt situation?

My country is in just as bad a shape when ti comes to debt levels. There are too many people who have chosen not to save and to get cheap loans because our central banks has set interest rates much lower than what the market would have set.

If you look at the average debt payment obligations of the public as a percentage of income the debt burden for consumers is line with what it has been historically.

But the American public has been spending far too much over the past few decades. It actually needed to pay off its debts but it kept consuming. With the nation delinquency rate at around 9.0% and a huge inventory of homes that are about to go into foreclosure it is hard to be optimistic over the short term.

The logic does not work. It is good that people are free to make choices so they can get into as much debt as they want no matter how much debt they already have and how far behind they are on payments. But when they make such choices it is not good for them or for the real economy because their actions are unsustainable.